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Rice is a very important crop in Japan as shown here in a rice paddy in Kurihara, Miyagi. (Photo credit: Wikipedia)

From this Thursday the 11 countries negotiating the Trans Pacific Partnership (TPP) trade agreement--the United States and Japan most important among them--will meet again in

Brunei. This session, lasting through the 31st, will be first in which Japan will participate as a full negotiating member.

Indications are it will be a particularly arduous negotiation. The TPP Committee of the Japan’s ruling Liberal Democratic Party (LDP) adopted a resolution that, if five products--rice, wheat, beef and pork, dairy products, and sweetening resources (e.g. sugar cane and beets)--cannot be exempted from tariff elimination, Japan should withdraw from the talks.

How really vulnerable to free trade is Japanese agriculture, and why is Japanese agriculture so presumably uncompetitive?

One of the most authoritative analysts of these issues is Yamashita Kazuhito, research director specializing in agricultural policy at the Canon Institute for Global Studies. Recently Yamashita published a report entitled: “The Road to Japan’s Becoming an Agriculture Based Country.”

This may sound like Japan reverting to a pre-industrial agrarian economy, but it is not. Yamashita is talking about arresting and reversing a precipitous decline in much of Japanese agriculture, especially cultivation of rice.

Part of Yamashita’s solution involves TPP. But his sine qua non for saving Japan’s agriculture is abolishing government anti-competitive, anti-market policies and structures imposed over decades that have zombified this industry.

How deep is the crisis of Japanese agriculture? Yamashita provides some data:

The total value of Japan’s agricultural output, after peaking at JPY 11.7 trillion (USD 120 billion) in 1984, had declined by one-third to JPY 8.2 trillion (USD 85 billion) in 2011.

Income from farming that had reached JPY 6.1 trillion (USD USD 63 billion) in 1990, by 2007 had declined by almost half, to JPY 3.3 trillion (USD 34 billion).

The most severe decline has been in paddy rice production. In 1960 rice still accounted for about 50% of total agricultural output value. In 2010 the share dropped below 20%. In 1960 farmers over 65 and older made up the total. Today they make up 60%.

Agricultural land--the most indispensable factor in farming--totaled some 6 million hectares (one hectare is 2.471 acres) in 1961. Since, public works have added over 1 million hectares. Adding these figures, we would expect agricultural to aggregate today to over 7 million hectares. In fact, it has declined to some 4.6 million hectares. Irrigated paddy acreage of 2.5 million hectares has been abandoned or converted to other uses.

In 2010 arable land abandoned or taken out of production totaled 400,000 hectares, an area the size of Saitama and Shiga prefectures combined.

The explanation given by Japan’s Ministry of Agriculture, Forestry, and Fisheries for abandonment of so much agricultural land is the aging of Japan’s farmers. Yamashita says this is wrong. The reason that land is being abandoned and that farmers’ average age keeps rising is that profits from farming keep declining.

Because profits from farming have declined, children have declined to succeed their parents in farming. This leaves aging couples no choice but to continue farming themselves. Also, they realize little improvement in income from expanding the acreage they cultivate, so they allow it to go fallow. And this is before considering the effects of Japan’s “genhan” system (below).

Are Japanese agricultural products--particular the “sacred five” of rice, wheat, beef and pork, dairy products, and sweetening resources (e.g. sugar cane and beets)--really so uncompetitive that protection is the only option? Yamashita strongly differs. Quality and effective marketing trump prices in almost all product markets--think BMWs.

The quality of Japanese rice, beef, and dairy products ensures ready and profitable markets--both at home and, especially, in neighboring countries, especially China. Japan should not be afraid to import lower quality rice for catering and restaurants, as this will free up premium quality domestic rice for export. The greatest obstacle to Japanese rice competitiveness is Japan’s protectionist policies.

In Japan the price of rice is supported by an 800% tariff, direct price supports and--most egregiously--the “genhan” system of mandated reduction in cultivated acreage. Government policy has focused on keeping prices high and keeping out imports--resulting in a great burden on consumers--rather than deregulating to lower costs that would also raise profits and strengthen competitiveness against imports while stimulating exports.

According to Yamashita, the “genhan” system has killed the competitiveness of Japan’s fabled rice because it acts directly to keep costs high. Cost per unit of quantity is derived by dividing cost of the cultivating specific area by the quantity yield of the area; as yield increases the unit cost decreases. The cost curve for cultivating rice slopes steeply downward as the area under cultivation increases. The key to reducing costs of rice production is increasing the size of cultivated paddy fields.

The “genhan” system--like its American counterpart--pays farmers not to farm. In the case of Japan, direct payments to farmers for keeping land out of rice cultivation keeps old couples with very small land holdings in production on a small scale (harvesting enough for their own needs, rather than buying high priced rice at the store) on the one hand, while, on the other hand, and more seriously for overall efficiency and industry rationalization, motivating them not to sell or lease their small holdings to others who might consolidate land into more efficient, lower cost rice production.